Finding Text
Federal Award Year: July 1, 2022 - June 30, 2023
Type of finding:
• Significant Deficiency in Internal Control over Compliance
Criteria: 2 CFR 200.303 requires that organizations establish and maintain effective internal controls in place over Federal awards that provide reasonable assurance that the non-Federal entity is managing the award in compliance with Federal statues, regulations, and the terms of and conditions of the Federal award.
Condition: During our audit, we identified errors relating to expense accruals and grant revenue
recognition that resulted in adjustment to the organization’s financial statements and schedule of expenditures of federal awards.
Context: We performed a search for unrecorded liabilities, which entails selecting payments made after year-end to determine if the payment was made for an expense that was incurred during the organization’s fiscal year under audit. Such testing is performed to assess whether the organization had properly accrued for all period expenses, as well as assessing the reliability of the internal controls in place to capture all accrued expenses. We sampled 20 payments made between July 1, 2023 and February 1, 2024, one of which was improperly accrued and four that were improperly not accrued, resulting in a net understatement of $154,969 to the schedule of expenditures of federal awards.
Cause: Revenue was underrecognized due to inaccurate recording of fiscal year expenses. Revenue was recognized for the expenses recorded for the fiscal year, however, there were expenses that should have been recorded in the fiscal year but were not, causing revenue to be underrecognized.
Effect or possible effect of condition: Without effective internal controls over compliance and financial reporting, the organization’s financial statements and schedule of expenditures of federal awards could be materially misstated.
Questioned Costs: None.
Repeat Finding: No.
Recommendation: We recommend that management review and strengthen its internal controls surrounding expense accruals for vendor and subrecipient payments for services rendered during the audit period but made after year-end and reconcile grant revenues and expenditures to ensure each are properly recognized and incurred, respectively.
Views of responsible officials: The outsourced accounting firm will create and execute a year-end process that will analyze all payments made during the 60 days following the fiscal year-end to ensure that expenses are recorded in the correct fiscal year. This process will ensure the Schedule of Expenditures of Federal Awards (SEFA) is reported properly. The grant program manager will ask vendors to submit their invoices for services rendered through the fiscal year end to Cure HHT within 30 days of the fiscal year end. Each grant contract year differs from the Cure HHT fiscal year.
Cure HHT will create and execute a grant reconciliation process that involves financial reporting from the outsourced accounting firm, members of the outsourced accounting team, Cure HHT grant managers, and Cure HHT management to validate that all cost reimbursable grants recognize revenue as costs are incurred. All parties will ensure appropriate accounting processes and controls are in place on an ongoing basis. The reconciliation process will take place monthly and at fiscal year-end.